The Court of
Appeal for this district held, in an opinion certified for publication
yesterday, that the trial court improperly ordered a company to refund the $5.5
million it was paid by the City of Pico Rivera for work on a project, holding
that it was entitled to have a jury decide whether it held a valid contractor’s
license.

Div.
Two, in an opinion by Acting Presiding Justice Judith Ashmann-Gerst, said that
Los Angeles Superior Court Judge Thomas I. McKnew, Jr. erred in deciding
the matter on his own, under the authority of Code of Civil Procedure §597.

That
section provides that a judge may decide any “special defense” that is raised.

After
Jeff Tracy, Inc., doing business as Land Forms Construction—which had been
chosen through competitive bidding to do renovation work at a city park—sued
the city for more money, the city cross complained against the contractor,
seeking disgorgement of all sums paid, invoking Business and Professions Code
§7031(b), which declares that, in general, “a person who utilizes the services
of an unlicensed contractor may bring an action in any court of competent
jurisdiction in this state to recover all compensation paid to the unlicensed
contractor for performance of any act or contract.”

The
city persuaded McKnew that the contractor “used a sham Responsible Managing
Employee” to gain the requisite “Class A” license, while the RME actually
provided no supervisorial services.

“By
statute, a contractor seeking damages must allege and prove it held a valid
license before it can prosecute any claim for damages….

“Accordingly,
by finding the issue of licensure to be a special defense rather than an
element of Land Forms’ breach of contract claim, the trial court abused its
discretion in relying on Code of Civil Procedure section 597 to deny Land Forms
a jury trial on this issue.

“This
conclusion is buttressed by the fact that, here, the determination of whether
Land Forms’ held a valid class A license involved questions of fact.”

The
jurist said in a footnote:

“It
is well established that the right to a jury trial is the same today as it
existed at common law in 1850, when the Constitution was adopted. Because a
plaintiff had a common law right to jury trial for a breach of contract cause,
so too does such a right exist today….The current legislative requirement that
a contractor plaintiff must, in addition to proving the traditional elements of
a contract claim, also prove that it was duly licensed at all times during the
performance of the contract does not change this historical right to a jury
trial.”

No Apportionment

The
appeals court provided guidance for the trial court on remand. If it is found
by a jury that Land Forms did not validly hold a “Class A” license,
disgorgement of the entire amount paid to it would be required, Ashmann-Gerst
said, rejecting its argument that it should be paid for all work which a lesser
license it held qualified it to do.

Sec.
7031(b), she noted, allows a party utilizing services of an unlicensed
contractor “to recover all compensation paid to the unlicensed contractor for
performance of any act or contract.” Ashmann-Gerst said that “the word ‘all; in
the statute has been interpreted to mean just that, all compensation
without any offsets.”